Monday, December 14, 2009

One wage/hour settlement practice which both California and federal courts have rejected in recent years is the reversionary, or “claims-made,” settlement. In a reversionary or claims-made settlement, defendants receive a complete waiver and agree to pay an amount of money – and plaintiffs’ attorneys collect fees based upon a percentage of this amount of money – even though both sides know that defendants will only, in actuality, be paying a fraction of the agreed-upon amount.

The idea of a reversionary, claims-made settlement is that the defendants will actually be paying “up to” the amount indicated, depending on the number and value of the claims that are submitted. So, if only 50% of eligible claims are submitted, then defendants may wind up paying only half of the agreed-upon amount, with the rest reverting to defendants, though the plaintiffs’ attorneys still collect fees on the full settlement amount. Though many courts no longer permit this practice, defendants still frequently try to offer claims-made (aka reversionary) settlements (which can be easy to sell to the corporate client – “I know X sounds bad, but you’re really only paying Y, so don’t worry!”). Some plaintiffs’ counsel may still agree to claims-made/reversionary settlements, too – but I urge you not to do so!

One top plaintiffs' firm that now has an absolute policy not to enter into any claims-made, reversionary settlements is Schneider Wallace Cottrell Brayton Konecky, of San Francisco. In Kakani v. Oracle Corp., 2007 WL 1793774 (N.D.Cal. June 19, 2007) (Alsup, J.), the Northern District of California – an epicenter of nationwide wage/hour class and collective action litigation – denied preliminary approval to a claims-made settlement of $9 million, which would have awarded $2.25 million (25%) in attorneys’ fees to Schneider Wallace and their co-counsel for plaintiffs, regardless of how many claims were submitted. As Judge Alsup explained, rejecting the deal, the “$2.25 million might wind up being more in fees than the class receives in payments.” Id. at *5. See also Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1329 (9th Cir. 1999) (after parties to a securities class action had agreed in settlement that class counsel would receive almost $3 million in fees, despite not securing any actual damages payable to class members, Ninth Circuit affirmed district court’s right to drastically reduce fee award, based on the rule that “the reasonableness of attorneys' fees is within the overall supervisory responsibility of the court in a class action”).

In Kakani, the Court explained that, “Such a [reversionary] scheme would be a bonanza for the company,” because Oracle would have eliminated all liability as to class members, regardless of how many claims they actually paid. Kakani, 2007 WL 1793774 at *5. Ultimately, the Northern District of California rejected the Kakani agreement, finding, “Without doubt, the main losers under this proposal would be those absent class members who wind up not submitting a timely claim and/or who never receive a notice letter in the first place.” The Court continued to state, “The Settlement Agreement expressly recognizes that some workers will never get any actual notice [e.g., because of bad addresses] and/or submit claims …. Nonetheless, Oracle specifically extracted a concession that all settlement amounts attributable to those workers would revert to Oracle…, yet those workers' rights would be erased.” Id.

The Kakani court effectively concluded what any lay person would know instinctively, looking at a class action settlement in which a company gets off the hook cheaply while the plaintiffs’ lawyers and representative plaintiffs make out big: that such a settlement does not suggest arms’-length bargaining, but rather, stinks of collusion. The inference may not be justified in every case - certainly even the most highly-regarded plaintiffs' attorneys, like Schneider Wallace, have at times (in the past) agreed to claims-made, reversionary agreements - but even this appearance of conspiracy can be and should be avoided, in my view.

California state courts have followed the Northern District of California’s lead in looking with disfavor upon reversionary, claims-made settlements, with one superior court judge in the complex litigation unit of Alameda County – a favorite place for plaintiffs to file wage/hour class actions – ruling unequivocally that, “The Court will not approve a settlement that contains a reversion to a defendant,” and denying proposed settlements on that ground. The judge in question, Steven A. Brick, relies upon “Managing Class Action Litigation: A Pocket Guide for Judges,” published by the Federal Judicial Center, which addresses reversion clauses and explains:

“A reversion clause creates perverse incentives for a defendant to impose restrictive eligibility conditions and for class counsel and defendants to agree to an inflated settlement amount as a basis for counsel fees. Instead of approving a settlement with a reversion clause, consider encouraging the parties to use an alternative approach, such as pro-rating the total settlement amount among the class members who file claims. Prorating is a straightforward way to avoid the possibility of unclaimed funds and has become a standard practice in class settlements."

These guidelines cite the influential decision in Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal. App. 4th 116, 129-133, requiring parties seeking approval of a class settlement to demonstrate the true value to the class of the settlement, and showing that such represents a reasonable compromise. It is impossible to show the value of a settlement to the class, and hence, that the settlement value is reasonable, if a settlement promises money which ultimately reverts to the employer under the agreement’s terms.

There are many ways to avoid the pitfall of a reversionary, claims-made settlement – the first of which is for plaintiffs and their counsel, when negotiating an agreement, to absolutely reject any offer containing such a term, like Bryan Schwartz Law does and Schneider Wallace does. Defendants and their counsel should be made to understand that the dollar value reached at the end of the negotiation is the actual amount defendants are spending – and not a penny less. Waived claims should be paid claims. It is up to plaintiffs’ advocates to do everything we can to make sure that employers do not get off easy for their wage/hour violations – and claims-made, reversionary settlements are inherently an easy out for employers.

Rather than having a reversion, a settlement can contain terms having any unclaimed funds be distributed to the participating class members in a second allocation. If the remainder amount is modest, it should go directly to a suitable cy pres recipient. Indeed, if a claims-made settlement agreement does not state where unclaimed funds will go, then – at least in California – such funds will go to a cy pres recipient (under Cal. Code Civ. Pro. §384), and will not revert to defendants. Cundiff v. Verizon California, Inc. (2008) 167 Cal.App.4th 718, 721-722.

Without a reversionary/claims-made term of the agreement, the parties to settlement and absent class members share a common interest – maximizing participation in the settlement, so the largest number of people benefit from the agreement, and hence, release claims. The parties will thus collaborate on ensuring that class members are actually contacted and appropriately encouraged to step forward and assert their claims. This way, the settlement value will be the amount that gets into class members’ hands to quiet their claims – as it should be – and plaintiffs’ counsel will have amply justified his/her fee as a percentage of the common fund.

PS - I note, only as a footnote, because of its very limited application, that the Ninth Circuit has permitted, in one instance, a limited reversionary clause in an unpublished opinion, in Glass v. UBS Financial Services, Inc., 331 Fed.Appx. 452 (9th Cir. 2009), in which any attorneys' fees allocated in the settlement which were not approved by the Court would revert to the defendants. While describing the pitfalls of a reversionary provision, and noting that reversionary provisions are generally "problematic," the Ninth Circuit permitted this limited reverter in the Glass case based upon a specific finding that the class received "exceptional" results from the agreement notwithstanding the provision. Id. at **2.

Friday, October 30, 2009

Back in the "good old days," which weren't always so good for everyone, and weren't that long ago (or old), for that matter, wage/hour class action settlements came easily, with big potential windfalls for the named plaintiffs and their lawyers. Courts are getting tired of these types of settlements - and, in my view, rightfully so, to a large degree.

Class action wage/hour lawyers need to keep in mind why most of us came to this area of the law - to make an impact on wage theft practices impacting large segments of the workforce, by hitting employers the only way we can make it count - at the bottom line. Letting employers off the hook relatively cheaply - with broad waivers for which absent class members get little or nothing in return - is wrong, whether the plaintiffs' lawyers and their named plaintiffs reap a hefty reward or not.

On the other hand - equally importantly - defendants have woken up from the shock of being repeatedly stung in these cases and have started to develop too-clever new means of killing claims for segments of the class, including getting cheap waivers of claims from individuals in the putative class in an efffort to whittle down the numbers of eligible class members. When defendants collect waivers of claims, without fully disclosing the extent of their potential liabilty to these putative class members, and pay pennies on the dollar compare to what they ought to be paying, these employers violate the robust public policies protecting workers' rights to be compensated fairly, and favoring class actions to vindicate wronged employees' wage/hour rights. Clear U.S. Supreme Court precedent and California Labor Code regulations state that employees' rights to be paid their wages are unwaivable. These employers may also violate their ethical obligations (e.g., Cal. Rules of Professional Conduct 3-600), since their interests are or may become clearly adverse to the putative class members' whose waivers they are soliciting, and since they are trying to pressure these under-informed employees to take substantially less than what they are (or arguably may be) owed.

In a series of blog entries over the coming months, I will discuss the string of recent cases in which courts have reacted to plaintiffs and defendants testing the limits of wage/hour settlements, and I will offer some thoughts as to where the courts and parties will be (or should be) drawing the lines in the months and years to come.

Plaintiffs’ lawyers can be a trendy lot. We need to know what issues are hot, what issues are not, who is bringing what – otherwise, we might find ourselves a step behind in the footrace for good cases. And no one is shooting for that 11th Place ribbon, after all.

Having conducted an entirely non-scientific, non-comprehensive survey of leaders in plaintiffs’-side wage/hour litigation around California, and bringing in my admitted biases based on the matters that happen to be sitting on my desk now, I have developed a Top 5 watch list of areas which might show significant movement in 2010.

#5: Independent Contractor-Franchisee Abuse

With the economy faltering, plaintiffs’ lawyers perceive that employers are more likely than ever to push the envelope on independent contractor classification, even going so far as to label some employees “franchisees.” By using the independent contractor designation, employers ostensibly avoid overtime and other wage/hour concerns, unemployment liability, federal and state tax deductions, workers’ compensation, wrongful termination hazards, etc. – in one fell swoop, drastically improving their bottom line by slashing the number of “employees.” Independent contractors can be terminated at a moment’s notice. Rather than having employees and all the burdens associated with such, by taking the next step and creating franchisees instead of employees, employers might even hope to generate income to improve their financial outlook, e.g., by charging franchise fees. Janitorial and transportation services are industries where such practices are rife.

However, employers should remain wary of overstepping into the independent contractor/franchise arrangement. Plaintiffs’ attorneys – and the government – are watching this area closely. Philip Monrad of Oakland, whose firm Leonard Carder has litigated regarding independent contractor designations for many years against FedEx, has other major independent contractor cases (with co-counsel) presently in litigation against UPS Supply Chain Solutions, Carey Limousine, and SuperShuttle. Mr. Monrad reports that because of the surge in unemployment claims (probably the biggest growth area in 2009) – and employers attempting to disclaim unemployment liability by claiming independent contractor designation – EDD has created a task force to crack down on independent contractor misclassification. Recall Air Couriers Intern. v. Employment Development Dept. (2007) 150 Cal.App.4th 923 (citing S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341), in which the employer wound up in litigation with EDD over its independent contractor classification – and lost. SuperShuttle is litigating now with EDD, and plaintiffs’ attorneys hope for a similar result. We may learn in 2010 to what extent plaintiffs’ attorneys and their clients can benefit from the fruits of EDD’s battles over independent contractor issues.

Independent contractor cases will still make good class actions in 2010. Earlier this year, Mr. Monrad’s firm obtained FLSA conditional certification of a class of “independent contractor” drivers alleging that they were misclassified, in Labrie v. UPS Supply Chain Solutions, Inc., 2009 WL 723599 (N.D.Cal. March 18, 2009) (Hamilton, J.). Providing first-tier FLSA notification under Hoffman-LaRoche to the class, the Court found most persuasive plaintiffs’ undisputed averments supporting certification that: (1) drivers were uniformly classified by defendant as “independent contractors;” (2) drivers were required to sign the same or similar contracts, setting forth the relationship between defendant and the drivers; (3) drivers performed pick-up and delivery services for defendant and its customers at the direction of the company’s dispatchers; (4) drivers regularly and consistently worked more than 8 hours per day and 40 hours per week, and were not compensated for overtime, time waiting for assignments, or return travel time; (5) drivers were paid according to a standard formula devised by defendant; and (7) drivers were subject to a nationwide policy with respect to rules for dispatchers in dealing with drivers. Labrie, 2009 WL 723599, at *7. Where plaintiffs can provide declarations from a group uniformly classified as independent contractors whose job performance is in fact controlled day-to-day by the employer, and who work extensive overtime, Labrie is a good model to obtain class certification. See also Khairy, et al v. SuperShuttle (N.D. Cal. May 21, 2009), Case No. 3:08-cv-02993 (White, J.), Docket #124 (“Order Granting Motion to Facilitate Collective Action Notice”).

And while on the subject of federal court – recall that the definition of “employer” under the FLSA is essentially broader than under any other statute,[1] such that it is certainly “legally possible to be an employee for purposes of the FLSA and an independent contractor under most other statutes.” Hopkins v. Cornerstone Am., 545 F.3d 338, 347 (5th Cir. 2008).

On the other hand, the recent cases of Ali v. U.S.A. Cab Ltd. (2009) 176 Cal.App.4th 1333, 98 Cal.Rptr.3d 568, and Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal. App.4th 72, stand for the proposition that plaintiffs with independent contractor cases – like all other putative class actions – should stay as far as possible away from California’s Court of Appeal in San Diego.

In Ali, the Court of Appeal upheld a certification denial, relying upon differences in declarations from the cab drivers at issue, showing divergent levels of the drivers’ usage of the services of the company’s dispatcher. Ali¸ 98 Cal.Rptr.3d at 581. The Court weighed and credited evidence that the drivers assumed “entrepreneurial risk” and provided “tools or instrumentalities of their own in connection with the services they render[ed]” in finding that individualized considerations would predominate and that the group lacked commonality. Id.

In Cristler, the Court of Appeal was unmoved by plaintiffs’ argument that the trial court's instruction that the plaintiff had “the obligation to prove that [the class members] were [defendant’s] employees” was improper – holding that the instruction did not improperly shift the burden of proof on the question of independent contractor status to the plaintiff. Cristler, 171 Cal.App.4th at 84. Employers might be tempted to believe that plaintiffs’ rebuttable presumption on the question of “employer” status is weakened after Christler, but even San Diego’s Court of Appeal acknowledged that the rebuttable presumption is intact, as long as plaintiffs present some evidence linking themselves to the employer. Id. at 84. See also id. at 83 (citing Lujan v. Minagar (2004) 124 Cal.App.4th 1040, 1048 [“There is a rebuttable presumption that one who furnishes services for an employer is an employee. (§ 3357.)”].)

Defendants may attempt to test – and plaintiffs may be fighting them in 2010 – regarding how far companies can push the “entrepreneurial risk” argument, like in Ali. We may expect to see cases where employers cross the line in arguing that their operational controls over employees are in fact just proper enforcement by a franchisor seeking to protect its trademark and the goodwill of its brand against abuse by franchisees. Mr. Monrad imagines that case law may develop in 2010 where employers try to argue that their controls over employees are merely just the company communicating to its contractors the details of the government’s regulations over the industry in question – as opposed to the controls of the employer over an employee. See, e.g., Southwest Research Institute v. Unemployment Ins. Appeals Bd. (2000) 81 Cal.App.4th 705 (methods the plaintiff was required to follow were dictated by health and safety regulations imposed by government agencies, so the putative employer did not exercise the requisite level of control over the plaintiffs’ work to categorize the plaintiff as an “employee”). Regardless, 2010 promises to be an interesting year in independent contractor/franchisee misclassification cases.

#4: Efforts to Undermine Class Litigation Through Individual Releases

In Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th 796, the company attempted settlement with individual putative class members after settlement of the lawsuit in mediation failed. Id. at 798. When many putative class members accepted the settlement offers, they executed general releases benefiting the company. Id. The releases required admissions that undermined the allegations in the lawsuit concerning the executive exemption, and a release of all overtime liability and any other Labor Code violations, agreeing not to participate in a class regarding the released claims. Id. Several of those who accepted the settlement offers and signed the general releases subsequently joined the putative class action, claiming the releases violated Labor Code sections 206 and 206.5 (providing that an employer shall not require the execution of a release of a claim or right on account of wages due), and the company cross-complained against them, alleging breach of contract. Id. The trial court held that the Labor Code did not prohibit the releases because a bona fide dispute existed as to the classification of the employees, and the Court of Appeal affirmed. Id. at 798-799, 803-804. See also Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1587 (following Chindarah).

According to David Lowe, of San Francisco’s Rudy Exelrod Zieff & Lowe, Chindarah and Watkins will not be last word on releases – more litigation on this issue can be expected around the state throughout 2010, as California employers are now emboldened to try to undermine class litigation through individual releases, and California employees’ attorneys are ready for a fight.

As Chindarah recognized, the federal law under the FLSA is opposite to the Chindarah holding, providing that statutory rights to overtime, etc., are unwaivable. Chindarah, 171 Cal.App.4th at 804 (citing Lynn’s Food Stores, Inc., v. United States (11th Cir. 1982) 679 F.2d 1350, 1352-1353). See also Barrentine v. Arkansas-Best Freight System (1981) 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (unwaivable statutory rights). As Chindarah also recognized (171 Cal.App.4th at 803), the California Supreme Court’s holding in Gentry v. Superior Court (2007) 42 Cal.4th 443, 456, aligns California law with Barrentine, holding that the right to overtime is unwaivable, and generally extolling the class action mechanism as the best means of enforcing wage/hour laws in most cases. See Gentry, 42 Cal.4th 459-464. The Chindarah decision minces words, holding that, notwithstanding Gentry, “there is no statute providing that an employee cannot release his claim to past overtime wages as part of a settlement of a bona fide dispute over wages.” Chindarah, 171 Cal.App.4th at 803.

The California Supreme Court denied review of Chindarah on June 10, 2009, and Chindarah’s holdings have since been repeated by Watkins, but other Courts of Appeal may well split with this line of cases, or effectively distinguish them. Chindarah, for example, did not deal with Cal. Labor Code §206.5’s provision that neither a right nor a “claim” on wages can be waived in a release – which some courts might hold does not permit a release even of claims that are disputed. Other plaintiffs and courts might seek to clarify the undefined “bona fide dispute” holding, defining a “bona fide” dispute essentially as one in which the employer would ultimately prevail on liability.

In the meantime, plaintiffs’ attorneys will likely more often file in Federal court, pleading FLSA claims – where such damaging waivers are patently ineffective. Defendants, for their part, are likely to try to have Chindarah elevated to the status of Sacred Legal Doctrine and try to have it spill over into the FLSA context – arguing, for example, that similar reasoning should allow them to obtain waivers of (for example) certain rights in FLSA cases (e.g., the right to pursue collective action).

Regardless, it seems evident that in many class actions in California, the Chindarah release approach will be hotly litigated in 2010, and the ramifications of this decision so frustrating to plaintiffs’ counsel will be further defined.

#3: Where to Go With Tip Pooling/Allocation Cases

In 2008, Plaintiffs attorneys were jubilant when Rudy Exelrod and Oakland’s Goldstein Demchak Baller Borgen & Dardarian won a B.P.C. §17200 verdict worth over $100 million from Starbucks on behalf of baristas, whose tips in the tip box on the register counter were shared with Starbucks’ shift supervisors, in violation of Labor Code §351. Apparently, those nickels and dimes add up to $1.71/hour per barista, times over 100,000 baristas working a lot of hours = a lot of tip money.

Section 351 provides that no employer or employer’s agent shall collect, take or receive any gratuity paid, given to, or left for an employee by a patron, and the trial court found that Starbucks’ shift supervisors were the employer’s “agents,” under §350(d) – a finding undisturbed by the Court of Appeal. However, the Court of Appeal in San Diego reversed the trial verdict based on the notion that the tips left in the tip box were not actually given to baristas, but given to both baristas and the shift supervisors who also serve customers. Chau v. Starbucks Corp. (2009) 174 Cal.App.4th 688, 691. The Court of Appeal held that nothing prohibits supervisors from sharing in proceeds placed in collective tip boxes, coining the term “tip allocation” to distinguish Chau from prior cases prohibiting agents from partaking in line employees’ tip pools. Id. at 691, 695-696, 703-706 (distinguishing Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, and Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138). For example, in Jameson, the Court of Appeal held that under §351, tip pooling is only permitted among employees who are neither employers nor agents under §350. Id. at 144-145.

David Borgen, co-chair of the National Employment Lawyers’ Association wage and hour committee, whose firm co-counseled the Chau case on plaintiffs’ behalf, believes that when employers overreach relying on the Starbucks case, they will still get slapped down in 2010. Though the Supreme Court denied review of Chau on September 9, 2009, Jameson is still good law. Employers’ agents who do not provide customers service the majority of the time, but still take a portion of their employees’ tips, or agents who engage in traditional tip pooling with their employees – taking a portion of tips given directly to first-line servers at tables, for example – will still be vulnerable to class action litigation. On the flip side, now perhaps low-level supervisors who have not been provided a tip allocation (like Starbucks shift supervisors received) but who did provide customer service can argue that they should have been receiving a portion of the tips – the opposite of the Chau plaintiffs’ argument, but a possibility in light of the Court of Appeal’s holdings.

Finally, the Supreme Court did grant review in Grodensky v. Artichoke Joe's Casino (2009) 91 Cal.Rptr.3d 732 (S172237) and Lu v. Hawaiian Gardens Casino, Inc. (2009) 88 Cal.Rptr.3d 345 (S171442) to determine whether there is a private right of action under §351. While the issue may have little consequence to plaintiffs’ lawyers accustomed to using B.P.C. §17200 in any event (e.g.,Chau was brought strictly under §17200), the Supreme Court may use the occasion to further define the scope of permissible tip pooling in 2010 (which had been raised in both the Grodensky and Lu review petitions), laying out the battle grounds in tipping cases for years to come.

#2: Certification Wars in Misclassification Cases

Of course, the defining moment of most wage/hour cases is the class certification motion, when we learn whether we are dealing with a big case, or little or no case at all. The often-friendly 9th Circuit dealt plaintiffs’ attorneys a body blow recently in deciding the companion cases of In re Wells Fargo Home Mortg. Overtime Pay Litigation, 571 F.3d 953 (9th Cir. 2009) and Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009), in which the 9th Circuit rejected Northern District of California Judge Marilyn Hall Patel’s holding in In re Wells Fargo that:

"[I]t is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation. This is particularly true in a situation such as this, where the difficulty of proving hours worked and compensation received is exacerbated by defendants' complete failure to maintain pertinent records. Accordingly, plaintiffs have satisfied their burden and demonstrated that common issues predominate."

In re Wells Fargo, 571 F.3d at 956. See also Wang v. Chinese Daily News, Inc., 231 F.R.D. 602, 612-13 (C.D.Cal. 2005) (predominance based on policy of treating employees in a certain position as uniformly exempt). Essentially, the Court of Appeal held that plaintiffs cannot establish predominance under the Fed.R.Civ.P. 23(b)(3) requirement in a wage/hour misclassification case just by establishing that the entire class was classified in the same manner by the employer. Discussing the outside sales requirement, the 9th Circuit explained, “Often, this exemption will militate against certification because, as the district court noted, it requires ‘a fact-intensive inquiry into each potential plaintiff's employment situation....’” In re Wells Fargo, 571 F.3d at 959. In Vinole, the 9th Circuit held that an employer may preemptively move to deny class certification – before plaintiffs have even filed their Rule 23 motion. Id., 571 F.3d at 948.

Matthew Helland, of Nichols Kaster in San Francisco, a firm which is currently litigating dozens of wage/hour class actions nationwide and in California, foresees that in 2010, employers in federal court will seek to revisit certification, seeking de-cert in many previously certified misclassification cases, relying on In re Wells Fargo and Vinole. Defendants may be chomping at the bit, ready to collect hundreds of declarations giving courts ominous indicators of “thousands of mini-trials” regarding “individualized circumstances.” Defendants are further likely to try to get the In re Wells Fargo and Vinole reasoning to permeate California’s state court jurisprudence. California’s Supreme Court, in fact, is still deciding on Harris v. Superior Court (2007) 64 Cal.Rptr.3d 547 (review granted November 28, 2007), in which a class of allegedly misclassified claims adjusters was decertified by the trial court, but re-certified and held to be non-exempt as a matter of law under the administrative/production worker dichotomy by the Court of Appeal, applying the Bell v. Farmers Ins. Exchange line of cases. See Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805; Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715. Some worry that the Supreme Court may dispense with the entire administrative/production worker dichotomy reasoning in deciding Harris.

However, plaintiffs still have quite a few arrows left in their quiver when it comes to certification. The 9th Circuit did recognize that uniform classification remains a factor (but not the only factor) when determining predominance under Rule 23(b)(3). In re Wells Fargo, 571 F.3d at 957-958. Unfortunately for the plaintiffs, Judge Patel’s decision in In re Wells Fargo was highly vulnerable to being overturned because the court certified the class, even while finding “serious issues regarding individual variations among [class members’] job duties and experiences.” Id. at 957. Suffice it to say, plaintiffs can still win certification where they demonstrate that job duties, job descriptions, compensation schemes, and the employer’s expectations were common to the class – as the plaintiffs in In re Wells Fargo have argued in their renewed class certification motion, after the 9th Circuit’s remand to Judge Patel. See In re Wells Fargo, Case No. MDL 06-1770, Docket #305 (September 15, 2009).

Moreover, plaintiffs bringing state claims might have an opportunity to avoid the problems of certification altogether in 2010. In Arias v. Superior Court (Angelo Dairy) (2009) 46 Cal.4th 969, the Supreme Court affirmed the Court of Appeal’s holding that a plaintiff does not need to comply with class certification requirements of California Code of Civil Procedure §382 when bringing claims under the Private Attorney Generals Act (PAGA), Labor Code §2699 (id. at 988) – unlike under §17203, as amended by the voters’ Proposition 64. Id. at 980. PAGA, in subdivision (a), says that “[n]otwithstanding any other provision of law” an aggrieved employee may bring an action against the employer “on behalf of himself or herself and other current or former employees.” The Supreme Court explained that, “[i]n a lawsuit brought under the act, the employee plaintiff represents the same legal right and interest as state labor law enforcement agencies-namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency.” Id. at 986. The Supreme Court in Arias went on to hold that, “[b]ecause an aggrieved employee's action under the Labor Code Private Attorneys General Act of 2004 functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government.”Id. The Supreme Court explained that non-party employees – who would not have received any class certification notice nor have been afforded the opportunity to be heard – could benefit from a favorable judgment by seeking other remedies in addition to civil penalties (e.g., back wages and premiums), by using collateral estoppel. Id. at 986-987. Yet, they would not be bound by any adverse judgment as to remedies other than civil penalties. Id.

How the repercussions of In re Wells Fargo, Vinole, Harris and Arias will play out in 2010 is anyone’s guess, but assuredly, employers and employees will be litigating and re-litigating class certification issues in misclassification cases across California trying to build on these precedents (or, in the case of Harris, anticipated precedents).

#1: Meal/Rest Period Litigation – Explosion or Implosion

The biggest pending wage/hour case in California is Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum) (2008) 80 Cal.Rptr.3d 781 (S166350), which San Diego’s Tracee Lorens, lead counsel for the plaintiffs, hopes and believes will be decided this coming year, after oral argument in the early months of 2010. Ms. Lorens reports that 23 amici have been filed in the case on behalf of dozens of organizations (including the undersigned’s amicus on behalf of the California Employment Lawyers Association). Virtually every workplace in the state will be affected by the Brinker decision, since none of us really knows, awaiting this decision, what we are supposed to do about meal and rest period premiums for non-exempt employees in our workplaces or in our cases.

At stake in Brinker is the viability of Cal. Labor Code §226.7 and §512, which require that employers pay one-hour premiums each time employees do not receive proper meal or rest periods. Or, is that what the Labor Code requires? Perhaps the Labor Code only requires employers to have a policy on the books officially allowing for compliant meal periods or rest periods, but leaving the rest up to employees. Or, perhaps the law requires something in-between – some level of employers ensuring that proper meal/rest periods are taken, but short of employers’ strict liability for premiums when meal/rest periods are missed. How different are the levels of obligation incumbent on employers with respect to meal periods compared to rest periods, if at all? The crux of the issue (and the reason, Ms. Lorens believes, the Supreme Court will want to decide promptly) is the vagueness of the statute requiring that employers “provide” breaks or else pay premiums. How should “provide” be interpreted? Like San Diego’s Court of Appeal decided in Brinker, or like the Court of Appeal in Sacramento, in Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 962-963?

Also at stake in Brinker is the viability of survey evidence to prove class claims. Brinker’s heavy reliance on the “individualized inquiry” line of reasoning and skepticism over survey evidence could devastate class wage/hour litigation, if adopted by the Supreme Court. As employers well know, without the use of special tools like surveys and statistics, proving liability and damages will always be an uphill battle in a class action – since plaintiffs will rarely equal defendants in the declaration collection race, inasmuch as defendants have a captive audience of employees.

At stake in Brinker may be more than just meal/rest period litigation – it may be the future of class wage/hour litigation in the state. In cases like Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, and Gentry, 42 Cal.4th at 443, the California Supreme Court has established itself as a powerful force in ensuring (or at least, providing) employee-friendly workplaces in California, sympathetic to wage/hour class actions. Does the denial of review in the Cristler v. Express Messenger Systems, Chindarah v. Pick Up Stix, and Chau v. Starbucks indicate that the Supreme Court is growing impatient with wage/hour class litigation, or does Arias mean the Supreme Court remains favorably disposed to wage/hour classes, but was just too busy to hear these 2009 cases? My crystal ball says that the Brinker decision, possibly just around the corner, will answer a lot of questions for California’s employment lawyers.

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[1] Section 203(d) of the FLSA defines the term “employer” very broadly, as “any person acting directly or indirectly in the interest of an employer in relation to an employee….” 29 U.S.C. §203(d). See Falk v. Brennan, 414 U.S. 190, 195, 94 S.Ct. 427, 38 L.Ed.2d 406 (1973) (noting the “expansiveness” of the FLSA’s definition of “employer”). See also Randolph v. Budget Rent-A-Car, 97 F.3d 319, 326 FN1 (9th Cir. 1996) (“The definition of the term ‘employee’ in the FLSA is extremely broad….(‘The Fair Labor Standards Act defines ‘employee’ simply as ‘any individual employed by an employer,’ and ‘employ’ as including ‘to suffer or permit to work.’ 29 U.S.C. §§ 203(e)(1), 203(g)). Thus, the term ‘employee’ is used in the broadest sense ‘ever ··· included in any one act.’”) (Emph added.); Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1469 (9th Cir. 1983) (FLSA’s expansive employer definition).

Friday, August 21, 2009

California's Supreme Court has before it the case of Brinker v. Superior Court, S166350, in which the Supreme Court will decide for all non-exempt workers in California to what extent, if any, they have any real entitlement to take the meal and rest periods guaranteed them by California law. Though California law provides that employers must pay costly premiums if their employees work through meal and rest periods, in Cal. Labor Code sec. 226.7 - to push employers to ensure that their employees are taking breaks - the Brinker decision completely undercuts the law. The decision gives employers an incentive to publish a superficially-compliant meal/rest policy, without giving actual breaks to their employees.

Follow this link to read the brief submitted by Bryan Schwartz Law to the California Supreme Court on behalf of amici curiae, the California Employment Lawyers' Association and the Consumer Attorneys of California, asking the Supreme Court to reverse Brinker:http://www.bryanschwartzlaw.com/Brinker.pdf

Friday, August 14, 2009

Bryan Schwartz Law submitted the following amicus letter to the California Supreme Court, on behalf of the California Employment Lawyers Association, asking the Court to grant review in a case of statewide significance to service employees, called Chau v. Starbucks. The case involves whether employers can steal tips, left by customers in tip boxes or tip cups at the register, to allocate a portion of them toward subsidizing otherwise subpar wages of supervisors. Before the Chau decision by the Court of Appeal, it was clear, from the California Labor Code and Courts of Appeal interpreting it, that employers could not pool tips between the employer's agents (aka supervisors) and non-agents (aka, in this case, baristas).

In case you're wondering, "How much do those little tips in the tip box/cup mean, anyhow?" --After a full trial on the merits, the lower court in Chau awarded the Starbucks baristas $86 million in restitution, plus interest and attorneys' fees. Hopefully, the Supreme Court will fix the injustice created by the Chau Court of Appeal and reinstate the employees' restitution.

This is a letter under Rule 8.500(g) in support of the petition for review by the Plaintiffs in Supreme Court Case No. S174601, Chau, et al. v. Starbucks Corporation (July 2, 2009) 174 Cal.App.4th 688, 94 Cal.Rptr.3d 593, Fourth Appellate District, Division One, Case No. D053491 (hereafter, Chau). This letter, on behalf of the California Employment Lawyers Association (CELA), supports the Plaintiffs’ request for review, to have this Court clearly hold that employers cannot require non-supervisory employees to share tips with supervisory employees who are agents of the employer. The Court of Appeal’s decision in Chau contradicts California Labor Code §§350(a) and (d) and §351, and also contradicts the Court of Appeal decisions in Jameson v. Five Feet Restaurant (2003) 107 Cal.App.4th 138, 131 Cal.Rptr.2d 771, and Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 268 Cal.Rptr. 647, which construe Labor Code §351 to establish a bright-line rule prohibiting tip-pooling with an employer’s agents. Thus, Chau throws into confusion a previously-settled rule regarding the allowable reaches of a tip pool, potentially affecting the income of millions of California service industry workers.

This Court has never directly addressed the proper scope of tip pooling, even though it has discussed Cal. Lab. Code §351 (see Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 166 Cal.Rptr. 331, and Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 252 Cal.Rptr. 278), in the context of applying tip credits against the minimum wage. Currently, the Court has before it two cases regarding whether §351 permits a private right of action.[1] Supreme Court review in the instant case would complement the latter.

California Courts of Appeal have long followed Leighton, 219 Cal.App.3d 1062 (decided closely on the heels of Henning), which ruled that employer-mandated tip pooling between servers and bussers at a restaurant is permitted under §351. Under §351, however, tip income left by patrons in a tip container for all servers may not be used by an employer to subsidize the wages of its agents, whether those agents also provide customer service or not. See generally Etheridge v. Reins Intern. California, Inc. (2009) 172 Cal.App.4th 908, 91 Cal.Rptr.3d 816.

CELA’s members have an abiding interest in the scope of permissible tip pools, directly at issue in this case. In particular, CELA seeks to ensure that the concept of tip pooling is not abused so as to undermine non-agents’ gratuities, guaranteed to be separate from agents’ compensation by Labor Code §§351 and 350(d), and that the State’s wage and hour laws are “liberally construed with an eye to promoting [worker] protection,” as this Court required in Henning, 42 Cal.3rd at 1269 (citing Industrial Welfare Com’n, 27 Cal.3d at 700-703). CELA maintains that this Court should not permit an interpretation, like that applied in Chau, which results or could result in tips which should be received by millions of California non-supervisory workers being misappropriated to defray employers’ payroll costs with respect to their agents.

II. Review is Warranted

A. The Court Should Resolve Chau’s Split With Jameson, Which Held that Employers May Not Pool Tips Between Agents and Non-Agents.

In Jameson, 107 Cal.App.4th 138 at 141, the Court of Appeal concluded that a tip pool benefitting "floor managers" was illegal because floor managers had sufficient supervisory duties to be considered the employer's agents rather than employees. See also Etheridge, 172 Cal.App.4th at 921 n.17 (citing Jameson). Here as in Jameson, substantial evidence supports the trial court’s conclusion after a full trial on the merits that Starbucks’ shift supervisors are “agents,” with whom, according to statute, non-agents like Plaintiffs may not be forced to share tips. See Petition for Review at pp. 16-18.

Supreme Court review is appropriate because the Court of Appeal’s application of the law permits what Jameson expressly forbids – tip pooling with supervisory employees who happen also to perform customer service functions. Jameson, 107 Cal.App.4th at 144-145.[2] In Chau, the Court of Appeal repeatedly emphasizes that the shift supervisors, whom the trial court found to be agents – a conclusion which the Court of Appeal did not dispute[3] –should be able to take a portion of the tips from Starbucks’ tip boxes because of the supervisors’ customer service responsibilities.[4]

The Chau court’s attempt to avoid an overt split with Jameson by inventing a new term for Starbucks’ practice – “tip apportionment,” as opposed to “tip pooling” – is at best flimsy, at worst disingenuous. The crux of the Court of Appeal’s distinction is that at Starbucks, the tips are left in a box at the register, rather than on a table or with a server. Chau, 174 Cal.App.4th at 700 (“[T]he legal principles prohibiting an employer from requiring an employee to share his or her personal tip with the employer's agent (‘mandatory tip pooling’) do not logically apply to an employer policy requiring equitable apportionment of the proceeds in a collective tip box (‘tip apportionment’).”). In Jameson, where the employer was taking a portion of the tips left on the table and giving it to its agents, it was apportioning tips in a prohibited manner (one might call it, “tip apportionment”). The essence of Jameson is precisely the opposite of what Chau holds – that an agent, though he or she may do some customer service duties, cannot share in the tips to be distributed to non-agents. Any factual distinction between the cases is immaterial, since in both cases the employer decided who may share customers’ tips and in neither case was the customers’ tipping intent manifest.

The real reason the Court of Appeal splits with Jameson may have more to do with the magnitude of Starbucks’ violation and the considerable restitutionary verdict after trial. Chau, 174 Cal.App.4th at 701, 706 (emphasizing Jameson’s $1,075 verdict and Chau’s $86 million result). But California law should not require restitution in small, individual cases of tip theft, but not when statewide, multi-million dollar violations are established. On the contrary, California’s interest in worker protection (see, e.g., Henning, 42 Cal.3rd at 1269) should be, if anything, more heightened in a case, like Chau, with a statewide impact, involving over 120,000 employees.

The Supreme Court should grant review to resolve Chau’s apparent split with Jameson, and should conclude that Jameson was right that, under Labor Code §351, employers may not pool or “apportion” pooled tips between non-agents and agents.

B. The Supreme Court Should Reject the Court of Appeal’s Presumption of Customers’ Intent in Chau.

Repeatedly, the Court of Appeal emphasizes its presumption that Starbucks's customers intended that their tips be shared among baristas and shift supervisors.[5] However, the Court of Appeal in Leighton, 219 Cal.App.3d 1062, 1069, long ago, properly rejected attempts by courts to presume the intentions of tipping customers where, as here, their intention was not explicit, i.e., where a customer left a tip on a table or in a cup or box. As the Leighton court explained, “[M]uch is made of for whom the gratuity is left, the intention of the patron in leaving it, and the lack of evidence offered by [the employer] in this connection. We dare say that the average diner has little or no idea and does not really care who benefits from the gratuity he leaves, as long as the employer does not pocket it, because he rewards for good service no matter which one of the employees directly servicing the table renders it.” (emph. added) Id. The Leighton court continued to describe the “near impossibility of being able to determine the intent of departed diners in leaving a tip.” Id. Under Leighton, the only bright-line rule as regards tip pooling (or tip apportionment) is that agents of the employer must be excluded.

Until Chau, the Leighton decision’s discussion of the perils of attempting to infer customer intent where tips are left collectively has been followed by every California Court of Appeal to rule in a tip pooling case. See, e.g., Etheridge, 172 Cal.App.4th at 921-922; Budrow v. Dave & Buster's of California, Inc. (2009) 171 Cal.App.4th 875, 880 n.4, 90 Cal.Rptr.3d 239. See also Jameson, 107 Cal.App.4th at 144-145 (same holding). See also depublished cases currently being reviewed by this Court on other grounds, Grodensky, 91 Cal.Rptr.3d at 755, 767-769; Lu, 88 Cal.Rptr.3d at 358.[6] This Court should restore the status quo ante by granting review and overturning Chau, which improperly relied on the appellate court’s interpretations of what it believed Starbucks’s customers’ intention must have been in leaving tips in a box at the register. Chau, 174 Cal.App.4th at 704 (“It is undisputed (and certainly the only reasonable conclusion) that by placing a tip in a collective tip box, the customer understands that this gratuity will be shared by all the service employees-baristas and shift supervisors.”). There was no substantial evidence in the record establishing whether Starbucks’ customers had the intention to tip agents of the employer. See Chau, 174 Cal.App.4th at 706 (citing plaintiffs’ petition for rehearing, stating, “They assert that customer intent was not an issue at trial, and note that neither party presented any testimony from a customer as to the customer's subjective intent in placing a tip in a collective tip box or how the customer intended to allocate a tip for more than one employee.”). As discussed above, even if customers did have an intention to tip agents, applying Labor Code §351 and 350(d), and affirming Jameson, Leighton, and the decisions following them, the Supreme Court should establish unequivocally that the employer was not permitted to pool or apportion or share tips between agents and non-agents.

C. Public Policy Dictates that Employers Should Not Be Permitted to Allocate Pooled Tips Between Agents and Non-Agents.

By blurring the bright-line rule that employers cannot pool, apportion, or share tips between agents and non-agents, and by rejecting the general prescription against inferring customers’ intentions regarding tips, the Court of Appeal in Chau has effectively rendered Labor Code §§350(d) and 351 meaningless and weakened the well-established precedents of Jameson and Leighton. Applying Chau, an employer can now easily force tip sharing between agents and non-agents with impunity, simply by ensuring that tips are placed in a box or cup and “apportioning” them to supplement service-providing supervisors’ wages. As this Court has repeatedly emphasized, California’s employees are entitled to greater protection than this.

The Court of Appeal did not dispute that substantial evidence supported the trial court’s findings that shift supervisors are agents, and plaintiffs’ Petition for Review cites a host of activities performed by supervisors which give them control or direction or supervision over the non-agent baristas, such as opening and closing stores, monitoring time cards, controlling cash, etc. Petition for Review at p. 17 n. 10. It does not require a leap of imagination to realize that shift supervisors can use this control, direction, and supervisory authority to skew the proportion of the tips that they receive, by, among other things, ensuring that they receive more work hours that count toward their allocation of the tips. The Labor Code expressly seeks to avoid this conflict by precluding tip sharing among the employer’s agents and non-agents, and Chau should not be permitted to undermine this clear rule.

In Henning and Industrial Welfare Commission, this Court explained that tips should not be used by employers to avoid paying market wages to non-tipped employees. See also Etheridge, 172 Cal.App.4th 908, discussing Henning and Industrial Welfare Commission (“Even though an employer can no longer use tip sharing to subsidize minimum wages of non-tipped employees, it is possible that an employer could use tip sharing to subsidize market wages of non-tipped employees, resulting in the same evil. Thus, when considering tip pooling, it is important to make certain that the employer is not using the tip pool as a de facto tip credit against market wages.”). Plaintiffs’ and CELA’s interest, and that supported by California’s public policy, is not to reduce the actual wages of shift supervisors – far from it – but rather, to make sure that Starbucks, and not its front-line baristas, bears the burden of paying shift supervisors the competitive wages they deserve.

III. Conclusion

For the foregoing reasons, CELA requests that this Court grant the Plaintiffs’ petition for review.

[2] The Jameson Court of Appeal explained: “Five Feet [the employer] argues that although the floor managers are involved in hiring, discharging, and supervising employees, they also serve patrons and thereby earn a share of the tips. Five Feet contends, therefore, the floor managers do not fall within the definition of agent in section 350. But the definition of agent under section 350 does not include a requirement that an agent's duties exclusively consist of hiring, discharging, or supervising employees. Section 350 does not even require that an agent spend the majority of his or her time performing such functions. Therefore, it is irrelevant that the floor managers at Five Feet perform other duties in addition to the functions described in section 350, subdivision (d)…. Under section 351, tip pooling is only permitted among employees who are neither employers nor agents under section 350.” Id.

[3] The Court of Appeal expressly did not decide this issue, ruling instead as a matter of law that supervisors can share in tips left collectively for customer service employees.

[4]See, e.g., Chau, 174 Cal.App.4th at 703 (“Starbucks's policy ensures that if a customer places money in a collective tip box with the intention that it be shared among baristas and shift supervisors, each employee will retain his or her fair share of the tip proceeds.”), 705 (“the vast majority of the time shift supervisors and baristas perform the same jobs….”).

[5]See, e.g., Chau, 174 Cal.App.4th at 703 (“In this way, Starbucks effectuates the customer's intent and does not permit the misappropriation of gratuities intended for a certain employee or employees.”), 704 (“[B]y placing a tip in a collective tip box, the customer understands that this gratuity will be shared by all the service employees—baristas and shift supervisors.”), 706 (“the testimony by baristas and shift supervisors was undisputed that customers leave tips in the collective tip boxes for the service team, which includes both shift supervisors and baristas”).

[6] CELA’s position is that several of these cases go too far in ignoring customers’ intent, even where it is manifest, e.g., where tips are given directly to casino dealers but taken by the employer to share with other non-agents. However, Chau’s position – inferring customers’ intent to share tips with the employer’s agents – is simply unprecedented.

Friday, July 10, 2009

This week, the Ninth Circuit Court of Appeals, one of the highest courts in the nation and generally considered one of the fairer United States Circuit Courts for employees, issued two momentous decisions which will drastically curtail employees' ability to certify wage/hour class actions in Federal court. These decisions were wrongly decided by three Ninth Circuit judges, but I hope the plaintiffs will seek en banc review from the entire Circuit. Otherwise, I fear, these precedents will become routine fodder for defendants opposing and courts denying class certification.

In Mevorah v. Wells Fargo Home Mortgage, No. 08-15355 (9th Circuit July 7, 2009), and Vinole v. Countrywide Home Loans, No. 08-55223 (9th Circuit July 7, 2009), the defendants had uniformly classified all of their loan officers as exempt from being paid overtime, saying they were all outside salespeople. Plaintiffs argued that, in fact, these loan officers were inside salespeople, who spent the majority of their time working from their desks at home or at defendants' facilities. The truth is, in today's workplace, there are few, true "outside salespeople," like the door-to-door vacuum or encyclopedia salesperson of old, whose office was his or her car and who worked wherever and whenever he or she pleased. Certainly, these mortgage loan officers were not of that ilk - the vast majority of their sales are typically completed on the phone and on the computer. The Northern District of California (Judge Patel) rightly concluded that it was "manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation." The Southern District of California (Judge Sabraw) concluded, on the contrary, that “no common scheme or policy that would diminish the need for individual inquiry.”

The corporations were able to scare the Circuit into siding with the Southern District decision, with the prospect of "several hundred mini-trials" for class members to determine whether each was properly classified as exempt from overtime. Defendants' reasoning was that individual issues would predominate, and hence, class certification was inappropriate, because the fact-finder would have to consider each class member separately to determine how many hours he/she spent at a desk and how many hours he/she spent doing outside sales. In the interest of justice and of vindicating the remedial purpose of the wage laws, the Circuit Court should have followed the model of the California Supreme Court on the same question.

In Ramirez v. Yosemite Water Co., Inc., 20 Cal. 4th 785, 802 (1999), California's Supreme Court noted the importance of considering "first and foremost, how the employee actually spends his or her time" in determining whether an employee is an outside salesperson. Though employers seized upon this language to say that no class could be certified because of the need for hundreds of mini-trials, i.e, that common issues would not predominate and that class certification was not the superior method for handling such wage claims, the CaliforniaSupreme Court followed up Ramirez with Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319, 335-336 (2004). There, California's Supreme Court explained, "Defendant mistakenly suggests that our decision in Ramirez, supra, 20 Cal.4th 785…, bars class certification in this matter…. Ramirez is no authority for constraining trial courts' ‘great discretion in granting or denying certification.’” Id. The Sav-On court observed that defendants wanted courts to extend Ramirez to shield employers from an action challenging a type of illegality that Ramirez was actually designed to prevent. Sav-On, 34 Cal.4th at 337. Unfortunately, the Ninth Circuit has now accepted the employers' invitation.

The Sav-On decision explained that “the need for individualized proof of damages is not per se an obstacle to class treatment,” and held that, “neither variation in the mix of actual work activities undertaken during the class period by individual [putative class members], nor differences in the total unpaid overtime compensation owed each class member, bars class certification as a matter of law.” Id. at 334-335.The Supreme Court explained, “Contrary to defendant's implication, our observation in Ramirez that whether the employee is an outside salesperson depends ‘first and foremost, [on] how the employee actually spends his or her time’ (Ramirez, supra, atp. 802…) did not create or imply a requirement that courts assess an employer's affirmative exemption defense against every class member's claim before certifying an overtime class action.” Sav-On, 34 Cal.4th at 337.

The Ninth Circuit should have decided - and should still decide, after a re-hearing en banc - that issues regarding defendants' policies and practices and operational standardization are likely to predominate in a class proceeding over any individualized calculations of actual overtime hours that might ultimately prove necessary. Id. at 331.

The Sav-On court ultimately upheld the trial court, which held, like in the Mevorah v. Wells Fargo case, that certification was warranted because “defendant classified its [putative class members] ‘exempt without any exception, and rel[ied] exclusively on these titles alone in redefining who is exempt and who is not exempt. The predominance of the defendant's class-wide exemption is evidenced by the fact that there is no compliance program that's ever existed, and no single class member has ever received overtime compensation. The class-wide policy does not vary from store to store, or employee to employee.’” Sav-On, 34 Cal.4th at 332.

As in Sav-On, the Ninth Circuit should also have considered that decisions whether certain tasks performed universally by class members - and whether those are really outside sales activities, or whether, in the Sav-Oncontext, the tasks are managerial or non-managerial for the purpose of applying the executive exemption - lend themselves to class treatment. Id. at 330-331. In the loan officer context, if promotional activities at trade shows, at realtor open houses, and networking at organizational meetings are determined to be outside sales activities, rather than activities generally directed toward marketing the company, then this would impact all class members' classification. As in Sav-On, regardless of who is correct, the issues which must be determined for liability (irrespective of individual differences in damages) “comprise a reasonably definite and finite list.” Id. at pp. 330-331.

In Sav-On, 34 Cal.4th at 331, 337 – as in Ramirez, 20 Cal.4th at 802 – at issue was, in part, the employer’s communicated expectations of their employees as a whole. Plaintiffs in outside sales exemption cases should be able to argue – applicable to the entire class – that, because defendants have communicated to the employees no finite expectations regarding outside sales activities, and the actual requirements of the job can and are generally accomplished from behind a desk in a company facility or the employees' homes, their classification as exempt outside salespeople is improper as a matter of law.

The Ninth Circuit's decisions of July 7, 2009 are disturbing, too, because they are dismissive of the ability to use pattern and practice evidence, statistical evidence, sampling evidence, expert testimony, and other indicators of a defendant's centralized practices, which Sav-On and many federal courts have embraced. Without allowing plaintiff classes to rely upon such evidence to prove class liability, the net result will be a massive windfall for employers cheating their employees of wages. Only those few who personally step forward to seek relief of even small wage claims, and risk retaliation and blackballing in the industry, and who have the wherewithal to endure lengthy litigation, will find any relief under federal and state wage laws.

On the contrary - as the California Supreme Court has recognized, and as the entire Ninth Circuit should recognize, the wage protections are intended to be broadly enforced, which can only be accomplished by class litigation.

In her May 24 column, Chronicle columnist Debra J. Saunders called the million-dollar settlement following the death of the "Naked Guy" a "jackpot for mom." Esther Krenn's son, Andrew Martinez, a.k.a. Berkeley's Naked Guy, took his own life in Santa Clara County jail after suffering for years with mental illness. Krenn had settled with the county after filing a wrongful-death suit.

Saunders does not know Krenn, but I do. Krenn, like any loving mother, would trade any amount of money to have her son back.

The primary offense is not Saunders' mean-spirited column: It is the dehumanization of a mother's son. This is what happens when we lock up our mentally ill citizens and throw away the key. In a larger sense, we killed Martinez because we let him, like so many others with mental illness, drift so far from our consciousness.

I knew Martinez for 10 years before he was the Naked Guy - when he was just a top student, football and wrestling star, and a self-assured presence who defied stereotypes. For those of us who were his friends, we knew that the Naked Guy rebellion should have been but the first act of a lifetime of changing the world. We all lost the day that Martinez died.

No one is to blame for mental illness, but we should all think about how we can do a better job helping people with such challenges. How could someone of such indomitable spirit been driven so low that he would take his own life?

It is because Martinez's excruciating insanity was criminalized. He was subjected to solitary confinement instead of being given appropriate care. He should have been in a hospital, not in a jail.

Saunders' column implies that Martinez fought needed treatment - but this mischaracterizes the record. Martinez did not refuse treatment in the days before his suicide. Even if he had, he should not have been able to: He was a known suicide risk under the county's care and authority, and thus legally not in a position to refuse medication.

Martinez's mother tried to get the county to pay attention to her son's deteriorating condition - to no avail. Although Martinez repeatedly expressed suicidal thoughts and once attempted suicide, the county assured Krenn that her son was doing well. Martinez would improve in the hospital but then be returned to jail, where the staff was untrained to deal with his illness. He would again lose competency to stand trial for criminal charges that never should have been brought because it was known he was mentally ill when he assaulted a staff member at a halfway house where he lived.

The state must repair the broken procedures regarding those incompetent to stand trial. By confining Martinez without proper treatment while he was trying to kill himself, the county sealed his fate.

The county will not admit its failings, but it has paid $1 million and agreed to revise its system. As an attorney, I know that a government defendant in civil litigation does not pay $1 million to an individual plaintiff as a "nuisance value" settlement, i.e, to avoid further litigation. The settlement is an acknowledgement of neglect, and of Martinez's wasted potential. Governments, like corporations, sometimes need litigation that impacts the bottom line to jar them from their complacency.

Among other changes to avoid other mothers' sons dying in vain, the notice provision portion of the settlement - ensuring that next of kin be alerted if an inmate attempts suicide - should be a part of California's penal code, not just Santa Clara County's new standards.

The state should also seek to redirect some budgeted prison funding to community-based, alternative placements for mentally ill/incompetent inmates to receive treatment.

Let us hope it does not take another tragedy, and another big settlement, to wake up this bureaucracy.

Thursday, May 21, 2009

Public employees’ constitutional rights are important. Recent figures suggest that sixteen million Americans — more than 10 percent of the nation’s workforce — are employed by a state or local government, with another two million, approximately, employed by the federal government. With the economic downturn, even more workers are moving from the private sector to typically more secure public sector jobs. See, e.g., “Despite Downturn, Federal Workforce Grows; Stimulus Plan Expected to Increase the Ranks at State, Local Levels,” MSNBC News Report, January 31, 2009 (http://www.msnbc.msn.com/id/28952802/). Simply put, public employees are a major and growing part of our workforce. However, public employees’ rights are now vulnerable, after the recent decision in Greenwell v. Parsley, 541 F.3d 401 (6th Cir. 2008).

In Greenwell, a deputy sheriff was fired because he ran for sheriff against the incumbent. The Sixth Circuit in Kentucky held that such a firing does not implicate the First Amendment, relying on an earlier precedent from that court which said that “[t]he First Amendment does not require that an official in [an employer's] situation nourish a viper in the nest.” Id. at 404 (citingCarver v. Dennis, 104 F.3d 847, 850-53 (6th Cir. 1997)). [1] Other circuits disagree, and rightly conclude that a public employee’s candidacy for office should be protected to at least the same degree as a public employee’s political speech. See, e.g., James v. Texas Collin County, 535 F.3d 365 (5th Cir. 2008); Finkelstein v. Bergna, 924 F.2d 1449 (9th Cir. 1991); Flinn v. Gordon, 775 F.2d 1551 (11th Cir. 1985); Washington v. Finlay, 664 F.2d 913 (4th Cir. 1981); Newcomb v. Brennan, 558 F.2d 825 (7th Cir. 1977); and Magill v. Lynch, 560 F.2d 22 (1st Cir. 1977).

The Greenwell plaintiff recently petitioned for the Supreme Court to overturn the 6th Circuit, in light of the 6th Circuit’s clear split with other Circuits on this issue. See Petition for Certiorari, 77 USLW 3619 (Apr 27, 2009) (No. 08-1328). The Supreme Court should grant review (certiorari) because “citizens are not deprived of fundamental rights by virtue of working for the government.” Connick v. Myers, 461 U.S. 138, 147 (1983). Running for office is a fundamental right.

The Supreme Court’s seminal decision in Pickering v. Bd. of Educ., 391 U.S. 563, 573, 88 S.Ct. 1731 (1968), set forth a balancing test for public employees’ First Amendment rights in the workplace. More recently, in 2006, the Supreme Court acknowledged, in Garcetti v. Ceballos, 547 U.S. 410, 126 S.Ct. 1951 (2006), “Many citizens do much of their talking inside their respective workplaces, and it would not serve the goal of treating public employees ‘like any member of the general public,’ [citing Pickering], to hold that all speech within the office is automatically exposed to restriction.” Garcetti, 126 S.Ct. at 1959. Greenwell seemingly eliminates the Pickering balance, reiterated recently in Garcetti.

There are four issues that warrant Supreme Court review of the Greenwell decision’s divergent holding: 1) whether a public employee may be prevented from speaking on a matter of public concern without balancing the interests of the employee, as a citizen, in commenting upon matters of public concern; 2) whether a public employee who communicates an intent to run for office has engaged in protected First Amendment speech; 3) whether a public employee can be fired based on the employee’s political affiliation even when that affiliation is irrelevant to the performance of the employee’s job; and 4) the depth of public employees’ First Amendment protections generally.

1. Public employees’ interests – as citizens - must be given weight.

Greenwell’s reactionary result – that the employer’s interest is all-encompassing and that the employees’ rights need not enter into the balance at all – erodes Pickering and its progeny to the point of meaninglessness. Certainly, the Supreme Court will undoubtedly find, an employee whose hostility to his employer (a public officeholder) reaches the level of insubordination, can be properly removed. See, e.g., Curran v. Cousins, 509 F.3d 36, 49 (1st Cir. 2007) (citing Stanley v. City of Dalton, Ga., 219 F.3d 1280, 1290 (11th Cir.2000)) (speech done in a vulgar, insulting, and defiant manner is entitled to less weight in the Pickering balance). But there still must be some balancing in this analysis.

2. The Court should not construe narrowly what kinds of public employees’ communications engender constitutional protection.

Contrary to Greenwell’s result, “speech on public issues occupies the ‘highest rung of the hierarchy of First Amendment values,’ and is entitled to special protection.” Connick, 461 U.S. at 145. After Greenwell and the 2006 Garcetti decision, a public employee cannot expect protection if he/she responsibly disagrees with the employer regarding a matter of public concern within the scope of his/her duties, nor if he/she tries to shift policy by dislodging the public officeholder. Essentially, this would leave a public employee devoid of the protection envisioned by Connick – unable to change a bad regime and stuck in it, without recourse, unless he/she is willing to sacrifice secure employment and the ability to provide for his/her family.3. The right to run for office is encompassed in the right to political association.

The Supreme Court has previously held that “[t]he First Amendment protects political association as well as political expression,” and that “[t]he right to associate with the political party of one’s choice is an integral part of this basic constitutional freedom” of association. Elrod v. Burns, 427 U.S. 347, 357 (1976) (plurality opinion) (quoting Buckley v. Valeo, 424 U.S. 1, 15 (1976) (per curiam). Those who devote their life to public service should not be deprived, contrary to Connick, the basic rights provided other citizens.

4. The Supreme Court should reaffirm the breadth of public employees’ constitutional protections.

Greenwell is particularly important because, despite the favorable language in Garcetti about treating public employees like members of the general public with respect to First Amendment expression, that 2006 Supreme Court decision may have raised doubts about the depth of public employees’ constitutional rights. In Garcetti, the Supreme Court held that “when public employees make statements pursuant to their official duties, the employees are not speaking as citizens for First Amendment purposes, and the Constitution does not insulate their communications from employer discipline.” Garcetti, 126 S.Ct. at 1960. Public employees need the Court, in reviewing Greenwell, to reestablish the strong First Amendment protections they still have on the job. See, e.g., Givhan v. Western Line Consol. School Dist., 439 U.S. 410, 414, 99 S.Ct. 693, 58 L.Ed.2d 619 (1979).

If you are a public employee whose constitutional rights have been compromised, contact Bryan Schwartz Law, www.BryanSchwartzLaw.com.

[1] The concurrence in Greenwell by Circuit Judge Boyce Martin invites Supreme Court review of both Greenwell and Carver. Judge Boyce’s strong language in his concurrence is compelling (rivaling Carver’s viper imagery): he described Carver, upon which Greenwell relied, as “a stray cat that hangs around the door and infests the house with fleas,” stating that Carver “continues to plague this Court's jurisprudence. As such, we are bound by its conclusion.” Greenwell, 541 F.3d at 405-406.

This is a letter under Rule 8.500(g) of the 2009 California Rules of Court in support of the petition for review by the Plaintiff/Appellant in Lu v. Hawaiian Gardens Casino, Inc. (2009) 170 Cal.App.4th 466, 88 Cal.Rptr.3d 345, California Court of Appeal, Second District, Division 3, No. B194209 (hereafter, Lu). This letter, on behalf of the California Employment Lawyers Association (CELA), seeks to have this Court define the scope of permissible tip pooling. The Court of Appeal’s decision in Lu is just one of several recent decisions by Courts of Appeal attempting to define the parameters of permissible tip pooling without Supreme Court guidance.[1] Though this Court has discussed Cal. Lab. Code §351, the basis for the instant dispute (see Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 166 Cal.Rptr. 331, and Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 252 Cal.Rptr. 278), this Court has never weighed in on the extent to which employers may appropriate money given by customers to service employees as gratuities and distribute it to other non-supervisory employees.

California Courts of Appeal have long followed Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 268 Cal.Rptr. 647 (decided closely on the heels of Henning), which ruled that enforced tip pooling between servers and bussers at a restaurant is permissible under §351. Leighton emphasized that the regulation states that a gratuity is “hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” (Ital. added to emphasize the plural.) However, recent decisions have begun to extend the tip pooling concept beyond merely multiple service employees assisting a single customer at a restaurant table. Lu stretches the tip pool to sharing tips between a casino dealer (who directly received the tip from the customer for his/her service) and chip runners, hostesses, poker tournament and poker rotation coordinators, customer services representatives or “floormen,” and concierges. Lu, 170 Cal.App.4th at 471. CELA believes that the better-reasoned view is that tip pooling can only be proper, under the plain language of §351, between non-supervisory employees[2] for whom the gratuities in question were “paid, given, or left for.” Under §351, tip income must not be used by an employer to subsidize the wages of other non-supervisory employees who were not responsible for the service which caused the customer to provide a gratuity.[3]I. Interest of Amicus

The undersigned writes on behalf of CELA, a “person” within the meaning of Rule 8.500(g), seeking to support the petition for review. CELA is a statewide non-profit organization dedicated to protecting workers’ rights. CELA’s member attorneys represent employees in all types of employment cases in state and federal courts and before administrative agencies, including employment discrimination, wrongful discharge, wage and hour, and unemployment insurance matters. In each of these substantive areas of law, CELA’s members and their clients challenge employers who fail to adhere to California and federal employment laws. CELA frequently appears as amicus curiae in matters before this Court, including, e.g., recent appearances in Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 56 Cal.Rptr.3d 880, Gentry v. Superior Court (2007) 42 Cal.4th 443, 64 Cal.Rptr.3d 773, and Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 81 Cal.Rptr.3d 282.

CELA’s members have an abiding interest in the scope of permissible tip pools, directly at issue in this case. In particular, CELA seeks to ensure that the concept of tip pooling is not abused so as to undermine employees’ property interest in their gratuities, guaranteed by Labor Code §351, and that the State’s wage and hour laws are “liberally construed with an eye to promoting [worker] protection,” as this Court required in Henning, 42 Cal.3rd at 1269 (citing Industrial Welfare Com’n, 27 Cal.3d at 700-703). CELA hopes that this Court will not permit an interpretation, like that applied in Lu, which results or could result in tips given directly to millions of California non-supervisory workers being misappropriated to defray employers’ labor costs with respect to other workers.

II. Review is Warranted

In Henning, 46 Cal.3d at 1279-1281, and Industrial Welfare Com’n, 27 Cal.3d at 729-731, the Court applied §351 to eliminate the practice of tip crediting, which had been used to pay service employees receiving gratuities less than the minimum wage, or a lower minimum wage than non-tipped employees. Part of the rationale for these decisions eliminating tip crediting and the two-tiered minimum wage was that “a lower minimum (which in itself is to provide an adequate) wage is only possible because tips are used to subsidize it” (see Henning, 46 Cal.3d at 1278, citing Industrial Welfare Com’n) – and employers should not be able to use tips (the property of the employees who received them) to subsidize otherwise inadequate wages. This Court discussed the legislative history behind §351, noting that the section, in its current form, was designed to prevent employers from “obtain[ing] the benefit (as, in effect, the payment of wages) of tips and other gratuities received by their employees,” and “from taking any tip given by a patron to his employee.” Henning, 46 Cal.3d at 1279.

The Leighton court discussed some practical difficulties behind this public policy, and held, pragmatically, that tip pooling cannot be prohibited in all circumstances, such as where servers and bussers are together working at a restaurant table. The Court of Appeal explained, in language cited by the Lu court and others:

"We dare say that the average diner has little or no idea and does not really care who benefits from the gratuity he leaves, as long as the employer does not pocket it, because he rewards for good service no matter which one of the employees directly servicing the table renders it. This, and the near impossibility of being able to determine the intent of departed diners in leaving a tip, in our view, account for the Legislature's use of the term 'employees' in declaring that 'every such gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.' (Lab.Code, § 351, italics added.) It is clear that the Legislature intended by this section to cover just such a situation." Leighton, 219 Cal.App.3d at 1069.

However, the Lu court disingenuously extends this language to the present situation. CELA hopes this Court will recognize the difference between leaving a gratuity in a tip cup at a coffee shop counter or on a table at a restaurant, where it may be pooled between all the non-supervisory employees providing the service the customers received, and a tip given directly to (for example) a casino dealer working at a table alone, apparently to recognize him/her. In the latter situation, there is no need to divine the customer’s intentions – he/she is tipping the dealer. There is no reason to believe that the customer intended also to recognize chip runners, or hostesses (who are separately tipped), etc. This is not a scenario in which rejection of tip pooling would create counter-productive incentives for employees and workplace strife, as in Leighton, 219 Cal.App.3d at 1070. There, the rejection of tip pooling between servers and bussers might lead to tips being commandeered by the first person to grab them off the table, and infighting as a result. Id. Here, the dealer need not fight for the tips he/she is given or swipe them before other employees notice – the tips are given to or left for him/her directly, and no one else.

The casino simply wants to subsidize the wages of its chip runners and others who do not receive tips by giving them part of the tips earned by dealers. According to Henning, this is against the legislative intent of §351, because it is taking money out of the dealers’ hands and using it to keep down the employers’ labor costs. While CELA would certainly condone an effort to ensure greater pay for chip runners and other non-tipped employees, and they will need to receive greater wages to attract their labor, if they are not receiving portions of dealers’ gratuities, their pay should not come out of the pockets of the tipped employees – but from the casinos.

The plain language of the statute is that the gratuities become the property of the non-supervisory employees for whom they are left. “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” Cal. Lab. Code §351. Courts do not need to get into case-by-case findings regarding customers’ intent, which, as Leighton explained, can be vague. But it is safe to hold that, where tips are left in a tip cup or at a restaurant table, they are the property of all non-supervisors involved in providing the customer with good service – whereas, when tips are handed to a casino dealer or left at a casino table where a dealer is still sitting and where he/she is the only person working, the tips are the sole property of that dealer.

III. Conclusion

For the foregoing reasons, CELA hopes this Court will not permit courts to follow Lu, allowing the spreading to non-tipped employees of gratuities earned by and owned by particular employees, designed only to avoid payment of competitive wages in the labor market. Please grant the petition for review.